#222: Powell in the Dark

micksonmatch
January 30, 2025

S2N Spotlight

I am working on a presentation related to the trading around the Non-Farm Payroll news release on the first Friday each month. Its a big trading event, so here is a start. I have lots more to get through, but this should provide some potentially new insights.

I have taken 10 years of 1 minute data of the S&P 500 futures and measured the performance from 8:30 am eastern standard time. I plot the mean with a dot and the range of returns with the vertical line. The interesting takeaway is that the further you get from the release, the greater the variability but also the better the average return. Only holding for a day is profitable. I don’t think there are too many NFP traders holding for a day yet; that is the best probability of success.

If you slice the data in a slightly different way with a boxplot, you get the same picture with a bit more colour. I don’t mean colour in the literal sense, but you do. I mean, there is a little more information. Explaining this in more detail I will do when less stressed about time.

S2N Observations

I mentioned about a week ago I would be interested to see how we were doing with money supply. The numbers are out, and as I suspected, there is more liquidity here than on an average summer day in London. Remember what Milton Friedman said: “Inflation is always and everywhere a monetary phenomenon.”

I see no change to this liquidity pumping approach in the data. Inflation doves beware.

At the press conference, Powell would not commit to when QT would end. The belief is that there shouldn’t be more than $1 trillion in excess liquidity, but there currently is still $4T.

We know that the Reverse Repo is well on its way to 0. But as you can see, the Fed’s Reserves on balance sheet are going nowhere.

Now for the reason why Powell is in the dark. I love to push this narrative that the markets (2-year Treasury) decide what to do with short-term rates. As you can see, nobody knows what to do. It is actually not a bad strategy in life. When you are unsure, rather don’t do anything.